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SCM Map Europe: European location decisions remain complex

Supply chains in Europe are facing a wide variety of changes. To arrive at optimal European supply chains it is crucial to consider shifts in economic growth, currency fluctuations and tax reductions in addition to production and distribution costs. For the fourth consecutive year, Supply Chain Media has produced the SCM Map of Europe providing an overview of the most relevant data for value chains.

By Martijn Lofvers

Europe remains the world’s most complex continent from a supply chain perspective, which is why Supply Chain Media has developed the SCM Map of Europe for the fourth consecutive year.

Key sales market

European urbanisation – a demographic representation of where the highest numbers of citizens live and work – forms the basis of the map. The most important urban corridor in Europe is the so-called ‘Blue Banana’ totalling 111 million inhabitants. It stretches from the northwest of England to northern Italy via the Benelux region, the Ruhr area, the Rhine region and southern Germany, Switzerland and the Tirol. The Blue Banana represents the key sales market for many brands in Europe.

The map indicates the actual and forecast growth of the gross domestic product (GDP) of fast-growing countries. Over the past five years, Turkey was the fastest-growing economy in Europe, followed by Poland. Of the Blue Banana countries, only Austria, Switzerland and Luxembourg made it into the top 10 of the fastest-growing economies for that period. And over the next five years, Turkey and Poland are predicted to remain in the number one and two positions of the top 10, which will furthermore be made up entirely of countries outside of the Blue Banana. Despite this expectation, the Blue Banana will continue to be Europe’s most important sales market.

Production and distribution

The map shows the key European production facilities of the world’s top 100 brands. The logos illustrate the manufacturers’ choices about whether or not to produce close to their sales markets. This year, the map also includes the hourly production costs for the individual European countries. Besides productivity, this is a key factor when deciding on a production location. In addition to the production facilities, the distribution centres are also essential in terms of reaching business customers and consumers, so the map of Europe displays the existing, emerging and potential distribution hubs. Logically enough, many existing distribution hubs are located in the Blue Banana corridor. According to logistics real-estate specialists, the Netherlands – and in particular the southern part of the country – is a favoured location and will remain so for the coming years. When companies are choosing the site for a distribution centre, decisive factors include not only the geographic location and good motorway links but also the rental price per square metre.

A second important feature to have been added in this version of the SCM Map of Europe is the World Bank’s Logistics Performance Index (LPI). The LPI is an interactive benchmarking tool which has been developed to help countries to identify the challenges which are standing in the way of improvements to logistics and trade flows. This index rates Germany as the best in the world in terms of customs handling, infrastructure, international shipments, competence of logistics service providers, tracking & tracing opportunities and, last but not least, on-time deliveries. The Netherlands ranks second in this global list, closely followed by Belgium.

Taxation and risks

In addition to the distance to the sales market, another important consideration for foreign companies when deciding whether to establish a base in a certain country is the corporate income tax. Europe’s highest level is in France, at 33.33 percent, despite it having recently been lowered by more than one percentage point. As well as high wage costs, France also has Europe’s highest number of days lost to strikes, which explains why relatively few international brands have based their factories and distribution centres in that country.

According to the risk experts at Aon, Turkey and Ukraine score the highest in Europe in terms of terrorism threat. Notably, Aon’s analysis ranks Poland equal with Russia with respect to political risk. Over the past year, Russia, Ukraine and Turkey have suffered heavily due to devaluation, whereas Switzerland has become considerably more expensive.